Trading Regulations for Non-Resident Clients
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Trading Regulations for Non-Resident Clients

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Questions and Answers

What is the latest time a clearing member must pay an amount due to JSE Clear?

  • 11h00 on the business day following the payment accrued
  • At the discretion of the clearing member
  • 10h00 on the business day before the payment accrued
  • 10h00 on the business day following the payment accrued (correct)
  • Which of the following is NOT included in the net amount a trading member shall pay to or receive from the clearing member?

  • Trading, clearing, and settlement fees
  • Variation margin for marked-to-market positions
  • Initial margin from non-resident clients
  • Equity dividend payments (correct)
  • In terms of JSE Clear rules, when must a clearing member pay the variation margin after being notified of a mark-to-market?

  • By the end of the clearing month
  • At any time determined by the clearing member
  • By the stipulated time set by JSE Clear (correct)
  • Before the close of the market on the same day
  • Regarding payment procedures, what must be agreed upon between a trading member and a clearing member?

    <p>The specific time for payments regarding transactions</p> Signup and view all the answers

    What type of fees must be included in transactions involving interest rate and currency derivatives?

    <p>Trading, clearing, and settlement fees</p> Signup and view all the answers

    Who acts as a settlement agent concerning payments to and from JSE Clear?

    <p>The trading member on behalf of its clients</p> Signup and view all the answers

    With whom must a clearing member have a clearing agreement to manage the positions of other trading members?

    <p>With trading members it has partnered with</p> Signup and view all the answers

    What is the role of JSE Clear when a clearing member's client position is marked-to-market?

    <p>To stipulate the time for payment of variation margin</p> Signup and view all the answers

    Which of the following best describes the purpose of initial margin in the context of JSE Clear?

    <p>To mitigate the risk of loss associated with a trading member's aggregate position.</p> Signup and view all the answers

    What conditions can lead JSE Clear to call for cash payments from market participants who have pledged securities?

    <p>When compliance with initial margin obligations is not met.</p> Signup and view all the answers

    In which scenario would the holder of a long position in a futures contract need to report a purchase using the JSE trading system?

    <p>Upon expiration of the futures contract and on Market Controller's instruction.</p> Signup and view all the answers

    What does the mark-to-market procedure involve at JSE Clear?

    <p>Revaluating positions based on current market conditions at specified times.</p> Signup and view all the answers

    Which of the following correctly represents what can occur when margin requirements change for a trading member?

    <p>The trading member may post cash or pledge securities to meet initial margin requirements.</p> Signup and view all the answers

    How are pledged securities treated if a trading member wishes to substitute them?

    <p>Substitutions must comply with specific rules, policies, and procedures of JSE Clear.</p> Signup and view all the answers

    What is the role of JSE Clear in margin payments procedures?

    <p>To determine risk levels and enforce margin payments accurately.</p> Signup and view all the answers

    Which statement accurately reflects how margin restoration procedures operate?

    <p>Participants must ensure their margins meet JSE Clear's requirements at all times.</p> Signup and view all the answers

    What is the latest time by which a payment due to a clearing member must be paid?

    <p>10:00 on the business day following the accrual of payment</p> Signup and view all the answers

    What must a client do to exercise an option contract registered in their name?

    <p>Notify the trading member verbally or in writing</p> Signup and view all the answers

    Which fees are included in the net amount a non-resident client must pay upon opening a position?

    <p>Trading, clearing, and settlement fees along with all margins</p> Signup and view all the answers

    What is the consequence of a client’s long position upon executing an option?

    <p>The underlying instrument is deemed bought or sold at the strike price</p> Signup and view all the answers

    What must a trading member do to exercise options registered in the name of a client?

    <p>Execute the options on the JSE trading system as prescribed</p> Signup and view all the answers

    When must the additional margin as referred to in trading contracts be paid?

    <p>By the time agreed upon with the trading member</p> Signup and view all the answers

    What can offset any amount due from a resident client related to their positions?

    <p>Any amount retained as margin from previous transactions</p> Signup and view all the answers

    What implications does a non-residential client face regarding the payment of variation margin?

    <p>It should align with the timelines defined by JSE Clear Rules</p> Signup and view all the answers

    What is included in the total amount the client must pay upon opening positions?

    <p>All required margins, fees, and additional charges</p> Signup and view all the answers

    What action must the holder of a long position in a futures contract take upon expiry?

    <p>Report a purchase of the underlying bonds.</p> Signup and view all the answers

    Under what condition can JSE Clear autonomously mark-to-market positions in any IRC security?

    <p>If prevailing market conditions warrant it.</p> Signup and view all the answers

    What type of margin must be provided by trading members when the risk of loss changes?

    <p>Initial margin.</p> Signup and view all the answers

    Which statement correctly reflects the treatment of pledged securities under JSE Clear rules?

    <p>They may be substituted with other qualifying securities.</p> Signup and view all the answers

    What does the expiration condition entail for an option contract relative to the futures contract?

    <p>The strike price must exceed the expiry price by a set amount.</p> Signup and view all the answers

    When can initial margin payments be called for by JSE Clear?

    <p>Whenever a trading member's risk profile changes.</p> Signup and view all the answers

    What is the primary purpose of marking-to-market at JSE Clear?

    <p>To assess current positions based on market values.</p> Signup and view all the answers

    What must a market participant do if they have pledged securities but wish to substitute them?

    <p>Follow the procedures to substitute with qualifying securities.</p> Signup and view all the answers

    What is the primary condition under which a trading member may require a resident client to deposit additional margin?

    <p>The amount is agreed upon in the client agreement.</p> Signup and view all the answers

    What is one role of the variation margin in futures and options contracts?

    <p>To cover potential losses due to market fluctuations.</p> Signup and view all the answers

    How does JSE Clear manage interest payments related to margin held?

    <p>By remitting it no later than the second day of the following month.</p> Signup and view all the answers

    What is the purpose of the retained margin related to a resident client?

    <p>To use as collateral for any future transactions.</p> Signup and view all the answers

    What might trigger a trading member to require restoration of additional margin from a client?

    <p>The additional margin has been used to meet payments of variation margin.</p> Signup and view all the answers

    What is necessary for a trading member to retain initial margin or variation margin payable to a client?

    <p>The client must provide prior written consent.</p> Signup and view all the answers

    When can a clearing member impose a requirement for additional margin from a trading member?

    <p>Based on a mutual agreement established in the clearing agreement.</p> Signup and view all the answers

    What constitutes the maintenance margin level for a client with additional margin deposited?

    <p>The client must replenish the level if it falls below an agreed amount.</p> Signup and view all the answers

    What occurs to a long position in an option contract when it expires at a strike price not better than the underlying instrument's expiry price?

    <p>The holder is deemed to have sold futures contracts equal to the number of contracts held.</p> Signup and view all the answers

    Which statement is true regarding the position management by JSE Clear in case of clearing a transaction?

    <p>Positions can be increased, decreased, or closed based on cleared transactions.</p> Signup and view all the answers

    When a transaction in a futures or option contract is cleared, what role does JSE Clear play?

    <p>JSE Clear replaces the seller and the buyer to ensure both parties are properly matched.</p> Signup and view all the answers

    What is the status of contract pricing for futures contracts at expiration according to JSE Clear?

    <p>The applicable price is the expiry price as specified in the contract specifications.</p> Signup and view all the answers

    What happens if a transaction clears when there is no position already held in a futures or option contract?

    <p>A position is opened and registered in the name of the trading member or its client.</p> Signup and view all the answers

    Under what condition does JSE Clear treat a long position as if it has sold futures contracts?

    <p>When the strike price is not better by a specified amount at expiration.</p> Signup and view all the answers

    What is the default price for an option contract sale or purchase at expiration?

    <p>The zero price as dictated by clearing rules.</p> Signup and view all the answers

    Which of the following statements about closing out positions is incorrect?

    <p>Only JSE Clear can initiate the closing of a trading member's position.</p> Signup and view all the answers

    What type of fees can a trading member levy on its clients?

    <p>Fees based on prior written agreements recorded in the client agreement</p> Signup and view all the answers

    In which situation must a clearing member remit interest received to the trading members?

    <p>Monthly in arrears as per the JSE Clear rules</p> Signup and view all the answers

    What is required for a trading member to levy a fee for trading with a client as a principal?

    <p>Prior written agreement from the client must be recorded</p> Signup and view all the answers

    What is included in the net amount a clearing member pays to or receives from JSE Clear with respect to non-resident clients?

    <p>The initial margin, variation margin, and trading fees</p> Signup and view all the answers

    Which parameter is considered when determining the trading fees for transactions in bonds?

    <p>Steps established by the JSE Executive</p> Signup and view all the answers

    What limitation is placed on the application of trading fees on the positions of clients?

    <p>They must follow the established fee schedule in the client agreement</p> Signup and view all the answers

    What is the role of JSE Clear concerning the collection of trading fees?

    <p>To recover fees from the clearing member on behalf of the JSE</p> Signup and view all the answers

    What must a trading member do regarding trading fees charged to clients?

    <p>They must adhere to the fee schedule in the client agreement</p> Signup and view all the answers

    What must a client do to ensure timely payment to a trading member?

    <p>Agree upon a specific payment time with the trading member</p> Signup and view all the answers

    Which of the following actions can a client take regarding the exercise of an option contract?

    <p>Provide verbal or written notice to the trading member by the expiry time</p> Signup and view all the answers

    What is the ultimate deadline for a trading member to pay the amount due to the clearing member after receiving a payment from the client?

    <p>By 10:00 on the business day following the payment accrual</p> Signup and view all the answers

    When a long position is exercised by a client, what is the client's position regarding the underlying instrument?

    <p>The client is deemed to have acquired or disposed of the instrument at the strike price</p> Signup and view all the answers

    What fee components are not included in the net amount payable by a non-resident client?

    <p>Performance bonds for trading activities</p> Signup and view all the answers

    What determines when a client must pay the variation margin after the position has been marked-to-market?

    <p>JSE Clear Rules as notified by the trading member</p> Signup and view all the answers

    What happens if a trading member has a proprietary long position in an option contract?

    <p>The trading member may exercise the option with no restrictions</p> Signup and view all the answers

    What must happen to an amount due to or from a trading member?

    <p>It shall be paid as per the mutual agreement about the particular payment</p> Signup and view all the answers

    Variation margin is paid only by a trading member to a clearing member after marking-to-market of a position.

    <p>False</p> Signup and view all the answers

    A trading member is allowed to retain any margin or interest payments without informing the client beforehand.

    <p>False</p> Signup and view all the answers

    Additional margin must always be equal to the initial margin according to the clearing agreement.

    <p>False</p> Signup and view all the answers

    JSE Clear is responsible for remitting interest from margins held to the trading members no later than the second day of the month after interest is accrued.

    <p>True</p> Signup and view all the answers

    The maintenance margin level must be restored when additional margin has been used for variation margin payments.

    <p>True</p> Signup and view all the answers

    Any trading member can demand additional margin from a resident client regardless of the client agreement.

    <p>False</p> Signup and view all the answers

    Retained margin can only be used for future transactions if the client has not traded with the trading member within a period exceeding sixty days.

    <p>False</p> Signup and view all the answers

    A trading member may remit interest received to clients at any time during the next month.

    <p>False</p> Signup and view all the answers

    The JSE levies different trading fees for transactions in bonds compared to other securities.

    <p>True</p> Signup and view all the answers

    A clearing member may refuse to process a trading member's transactions if additional margin is not promptly deposited as per the agreement.

    <p>True</p> Signup and view all the answers

    A clearing member can charge additional fees on a principal transaction without prior written agreement from the client.

    <p>False</p> Signup and view all the answers

    The sum of the initial margin is included in the net amount to be received from JSE Clear only for resident clients.

    <p>False</p> Signup and view all the answers

    Clearing members are not responsible for any fees associated with the trades of their clients.

    <p>False</p> Signup and view all the answers

    Monthly in arrears is the term used for when the clearing member pays interest for the current month.

    <p>False</p> Signup and view all the answers

    The variation margin is a type of fee that must be paid by clients for transactions involving currency derivatives only.

    <p>False</p> Signup and view all the answers

    A trading member must adhere to a schedule of fees determined by themselves without any external oversight.

    <p>False</p> Signup and view all the answers

    A long position holder in a futures contract must always report a purchase of the underlying bonds upon expiry.

    <p>True</p> Signup and view all the answers

    Mark-to-market positions are evaluated at 15h30 on every business day by JSE Clear.

    <p>False</p> Signup and view all the answers

    Initial margin payments can only be made in cash and not through securities pledged to JSE Clear.

    <p>False</p> Signup and view all the answers

    JSE Clear can independently mark-to-market positions in any IRC security only if it deems it necessary based on market conditions.

    <p>True</p> Signup and view all the answers

    Pledged securities may be substituted or withdrawn without any conditions under JSE Clear rules.

    <p>False</p> Signup and view all the answers

    Once an option contract expires, the strike price has no impact on the futures contract's expiry price.

    <p>False</p> Signup and view all the answers

    Market participants may be called for cash payments at any time if their pledged securities are withdrawn.

    <p>True</p> Signup and view all the answers

    The information regarding margin payments is solely based on the financial status of the trading member.

    <p>False</p> Signup and view all the answers

    The variation margin must be paid by a client before the expiry time of the option contract.

    <p>False</p> Signup and view all the answers

    A trading member with a long position in an option can exercise the option only if it is registered in the client’s name.

    <p>False</p> Signup and view all the answers

    Payments due to a trading member from a client must be made without any specific time agreed upon between both parties.

    <p>False</p> Signup and view all the answers

    The strike price is the price at which the option holder is deemed to have bought or sold the underlying instrument upon exercising the option.

    <p>True</p> Signup and view all the answers

    The retained margin can be used to offset any amount due from a non-resident client.

    <p>False</p> Signup and view all the answers

    A client is only allowed to exercise an option contract using written notice.

    <p>False</p> Signup and view all the answers

    JSE Clear must receive payments by no later than 10:00 on the day following when they accrued.

    <p>True</p> Signup and view all the answers

    The additional margin can be paid after the standard variation margin is settled.

    <p>False</p> Signup and view all the answers

    JSE Clear becomes the counterparty to both the buyer and the seller after a transaction is cleared.

    <p>True</p> Signup and view all the answers

    A long position in an option contract is deemed to have sold futures contracts if the strike price meets the expiry price conditions.

    <p>False</p> Signup and view all the answers

    The price of an option contract upon expiry is considered zero in the context of settling futures contracts by JSE Clear.

    <p>True</p> Signup and view all the answers

    A position in a futures contract is always closed out once a transaction has been cleared by JSE Clear.

    <p>False</p> Signup and view all the answers

    JSE Clear applies its clearing rules automatically to both futures and option contracts.

    <p>True</p> Signup and view all the answers

    The number of futures contracts deemed bought by a short position matches the number of options in the position upon expiry.

    <p>True</p> Signup and view all the answers

    Positions registered under a trading member can only be increased through subsequent clearing transactions.

    <p>False</p> Signup and view all the answers

    When there is no existing position, a new position is registered with JSE Clear at the time of transaction clearance.

    <p>True</p> Signup and view all the answers

    Study Notes

    Non-Resident Client Payments

    • Clients must settle net amounts with trading members, including initial margins, additional margins, variation margins, and transaction fees for interest rate and currency derivatives.
    • Payments to exchange members should ensure timely compliance with clearing house deadlines, specifically by 10:00 AM on the business day following the accrual date.
    • Variation margin payments must adhere to the rules set by JSE Clear and be communicated to clients by trading members.

    Exercise of Option Contracts

    • Clients holding long positions in options may exercise their options until the expiry time by notifying their trading member verbally or in writing.
    • Trading members with proprietary long positions exercise options by executing the trade on the JSE trading system, either directly or on clients' instructions.
    • Option exercise results in the automatic purchase or sale of the underlying instrument at the strike price, as designated by JSE Clear.
    • If an option expires better than the underlying futures’ price, it is automatically deemed exercised.
    • On expiry of physically settled futures, long position holders must report purchases, while short position holders must report sales of underlying instruments as per IRC settlement rules.

    Mark-to-Market Procedure

    • Positions in IRC securities for all trading members and clients are marked-to-market at 17:30 daily or at a time determined by JSE Clear.
    • JSE Clear retains the authority to mark-to-market any IRC security positions if market conditions necessitate further assessments.

    Margin Requirements

    • Initial margin must be adjusted by trading members or clients whenever there are changes in risk exposure, as evaluated by JSE Clear.
    • Payments for initial margins can be made in cash or via pledging securities, subject to JSE Clear regulations.
    • Securities initially pledged can be substituted with other qualifying securities, following the proper rules set by JSE Clear.
    • JSE Clear can demand immediate cash payments from market participants to fulfill margin obligations if securities are withdrawn or substituted.
    • All amounts due must be settled by 10:00 AM on the business day following accrual, as mandated by JSE Clear rules.

    Clearing Member and Client Settlements

    • Clearing members must pay variation margins for proprietary and client positions marked-to-market by JSE Clear at specified times.
    • Trading members serve as settlement agents for their clients, facilitating payments due to or from JSE Clear based on trading agreements.
    • Payments made between trading members and clearing members should consider the inclusion of initial margin, additional margin, variation margin, and transaction fees tied to interest rate and currency derivatives.

    Clearing Process

    • JSE Clear is responsible for clearing derivative securities trades executed on the JSE trading system’s central order book and off-book transactions reported and matched within the system.
    • Clearing involves JSE Clear acting as the counterparty: replacing the buyer for the seller and vice versa after a transaction is cleared.

    Position Management

    • Futures or option contracts without prior positions are registered in the trading member's name during the clearing process.
    • Positions in cleared transactions are adjusted: new positions can be opened or existing positions increased or closed out.
    • On expiry of option contracts, specific conditions trigger obligations to deem sales or purchases of futures contracts at the designated expiry price.

    Mark-to-Market

    • Positions in IRC securities get marked-to-market daily at 17:30 or other specified times by JSE Clear.
    • JSE Clear can mark-to-market positions at any time if market conditions warrant this action.

    Margin Requirements

    • Initial Margin: Paid when risk of loss changes, can be in cash or pledged securities, ensuring compliance with JSE Clear rules.
    • Variation Margin: Required when positions change due to marking-to-market or closing out positions.
    • Additional Margin: Clearing members may request more from trading members per their agreements, and trading members can require additional margin from clients.
    • Retained Margin: Trading members may require residents to deposit money for initial or additional margins and can retain margins for future trades under certain conditions.

    Interest Payments

    • JSE Clear manages and invests margins and sends out net interest to clearing members monthly, allowing them to remit interest to their trading members and clients.

    Fees Structure

    • Trading fees are charged for trades executed on the JSE, determined by the JSE Executive and may also be passed down to clients.
    • Bond transactions incur separate fee structures, also decided by the JSE Executive.

    Payment Procedures

    • Fees and margins must be paid to JSE Clear by trading members for their clients’ positions, including:
      • Initial margins
      • Variation margins
      • Trading, clearing, and settlement fees.
    • Client obligations for variation margins and other fees must be met within stipulated times.

    Exercise and Assignment of Option Contracts

    • Clients can exercise long positions in option contracts upon expiry via verbal or written notification to their trading members.
    • Trading members must execute exercises on the JSE trading system, also for client instructions, completing the terms of the contract and transferring the underlying instrument at the specified strike price.

    Clearing Process

    • JSE Clear is responsible for clearing derivative securities trades executed on the JSE trading system’s central order book and off-book transactions reported and matched within the system.
    • Clearing involves JSE Clear acting as the counterparty: replacing the buyer for the seller and vice versa after a transaction is cleared.

    Position Management

    • Futures or option contracts without prior positions are registered in the trading member's name during the clearing process.
    • Positions in cleared transactions are adjusted: new positions can be opened or existing positions increased or closed out.
    • On expiry of option contracts, specific conditions trigger obligations to deem sales or purchases of futures contracts at the designated expiry price.

    Mark-to-Market

    • Positions in IRC securities get marked-to-market daily at 17:30 or other specified times by JSE Clear.
    • JSE Clear can mark-to-market positions at any time if market conditions warrant this action.

    Margin Requirements

    • Initial Margin: Paid when risk of loss changes, can be in cash or pledged securities, ensuring compliance with JSE Clear rules.
    • Variation Margin: Required when positions change due to marking-to-market or closing out positions.
    • Additional Margin: Clearing members may request more from trading members per their agreements, and trading members can require additional margin from clients.
    • Retained Margin: Trading members may require residents to deposit money for initial or additional margins and can retain margins for future trades under certain conditions.

    Interest Payments

    • JSE Clear manages and invests margins and sends out net interest to clearing members monthly, allowing them to remit interest to their trading members and clients.

    Fees Structure

    • Trading fees are charged for trades executed on the JSE, determined by the JSE Executive and may also be passed down to clients.
    • Bond transactions incur separate fee structures, also decided by the JSE Executive.

    Payment Procedures

    • Fees and margins must be paid to JSE Clear by trading members for their clients’ positions, including:
      • Initial margins
      • Variation margins
      • Trading, clearing, and settlement fees.
    • Client obligations for variation margins and other fees must be met within stipulated times.

    Exercise and Assignment of Option Contracts

    • Clients can exercise long positions in option contracts upon expiry via verbal or written notification to their trading members.
    • Trading members must execute exercises on the JSE trading system, also for client instructions, completing the terms of the contract and transferring the underlying instrument at the specified strike price.

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    This quiz explores the financial obligations and trading regulations that non-resident clients must adhere to when interacting with trading members. Key concepts include initial margin, additional margin, variation margin, and various fees associated with trading activities. Test your understanding of these essential financial principles.

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